The Importance of Firm Foundations in Web3

Happy Monday fellow wayfinder!

Last week, we discussed why people lead or join communities. This week, we look at why firm foundations are important in Web3 (which includes AI, since it’s trending).

Let's dive in.

☕️ Reading time: 5 mins.

Law and order are fundamental building blocks for any economy (or civilization for that matter). But why?

Because without solid foundations in these areas, you cannot build a thriving economy on top of it. And when it comes to societies, even digital, those foundations can include everything from law to belief systems.

In the world of Web3 — the tech has given way to greed, and early adopters have been led astray by misguided narratives (e.g. decentralization, DeFi, “not your keys, not your crypto,” etc.).

As a result, criminal activities have run awry. And folks in Web3 are only now starting to see why things like law and order matter:

This is a far cry from just a year or so ago, when everyone was hyping over NFTs. Before that it was ICOs in crypto.

The problem with all this is that it shows just how blind we can get from the shiny and new. But the more we peer into the past, the more we can see the same sort of patterns play out — regardless of the jargon at the time.

🔴 The Past (Lessons from History)

The “Wild West” of the United States

The Wild West period in the United States (c. 1865-1895) was a period of 30 years involving lawlessness and chaos. Individuals had to rely on their own abilities to protect themselves and their property. However, as the population grew and the need for stability increased, the government began to establish law and order. This was facilitated by the creation of local law enforcement agencies, such as sheriffs and marshals, and the passage of laws that governed behavior and protected individual rights. The establishment of law and order was necessary for economic growth, as it provided a stable environment in which businesses could operate and people could feel secure in their daily lives.

The Golden Hordes of Mongolia

In ancient Mongolia, various tribes were often in conflict with one another, hindering the growth and stability of the region. It wasn't until Genghis Khan emerged and began to establish law and order (~1206 AD) that the various tribes were able to come together and unite under a single banner. Genghis Khan's law code, the Yassa (which I’ve mentioned before here), helped to standardize the various tribal laws and customs, creating a sense of unity and cohesion among the Mongolian people. By establishing law and order, Genghis Khan was able to create a stable environment in which the Mongolian people could thrive, leading to the eventual formation of the Mongol Empire.

The Code of Hammurabi & Ancient Mesopotamia

Law and order played a significant role in bringing the empire of Mesopotamia together. The Code of Hammurabi, one of the earliest legal codes, was created to establish justice and preserve order in ancient Babylon. The code was based on the principle of "an eye for an eye" and served as a means of punishing wrongdoers. The code encompassed a wide range of topics, including criminal law, family law, and commercial law. By enforcing strict laws and punishments, the Babylonian empire was able to maintain order and stability throughout its territories.

So what did all these examples have in common? Law. Codes.

But what ensured these laws and codes were kept? Law enforcement.

🔴 Modern Times (Lessons from Today)

So how do all these past examples translate to modern times? Well, if we use Bitcoin as an example, we can see how the law/code/rules equivalent was passed down by Satoshi Nakamoto through the now famous Bitcoin whitepaper. In software engineering, a “protocol” can also be substituted for “rules.”

The problem with Bitcoin was that, because it (and subsequently “crypto”) was popularized by cypher-punks and anarchists, there was a strong culture and narrative of “decentralization,” “anti-authoritarianism,” and “anti-censorship” that took over. As a result, what was popularized wasn’t always what was true behind-the-scenes.

Because no one was around to enforce the Bitcoin whitepaper on participants — as Satoshi himself left the project for a couple years — there was a power vacuum filled by people (e.g. Bitcoin Core) who didn’t necessarily want to adhere to the original rules of the whitepaper. This gave them the freedom to change things under the hood (e.g. SegWit), while keeping the name (Bitcoin).

So what happens when you leave laws/codes/rules unenforced?

Well just take a look at other countries around the world: Somalia, Venezuela, and Honduras. all suffering from a lack of functioning governments and reliable justice systems.

Even El Salvador, one of the first countries to make Bitcoin legal tender, has issues with criminals and gangs. As a result, their President, Bukele, has taken drastic measures to rid them from the country. Something very reminiscent to what Lee Kwan Yew, of Singapore fame, did in the 1960s. Those who enjoy freedom without accountability see such iron-fist moves as authoritarian but, in the long run, it ends up being highly beneficial for their respective societies.

In crypto/NFTs/Web3, local judges are now starting to take drastic action against people and companies who have been left unchecked for years. Just take a look at some of the most recent news:

The courts may have been slow in dealing with all this, but now that they’ve gotten up to speed, they’re starting to “clean up” in droves. And I don’t expect this to slow down any time soon.

So can you see the conflict in narratives for crypto/Web3, versus what is required to ensure true wealth for everyone in the long run? Law and order are vital components in building solid foundations for this space.

🔴 3 Practical Tips

Don’t get me wrong. Rebels and outlaws often play a vital role in the disruption of status quos and expanding new territories. However, left unchecked, they become liabilities to everyone. There comes a time when the settlers are needed to build sustainable systems for everyone else. But they cannot do so until solid foundations have been put in place, including law and order.

We are that time in Web3, even if it feels like we’re still early.

So what can you do to prepare or improve? Here are 3 practical tips:

1. Register your ideas. If you’re idea is novel enough, test it by submitting a patent or registered trademark for it. If it is truly original, you’ll be willing to put in the effort, and it will get granted. If it’s not, you’ll know quickly enough going through this process.

2. Use the Howey Test. This test is often used by the SEC, and other courts globally, to determine whether a token or project is a security or not. Use it to understand your own project or those you might be promoting.

3. Watch you words. As noted with the SEC ruling recently around emojis and investment advice, everything you put out on social media now is usable in courts of law. So think twice before you put something out involving blockchain or financial instruments. It is a whole new ball-game.

Found this post useful? Let me know by hitting reply or sharing it with friends!

Until next week, remember: through patience & persistence, it will come.

George

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